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 Rondo Building Services  P/L v Casaron P/L & Anor [2003] QCA 78 (7 March 2003)

SUPREME COURT OF QUEENSLAND

CITATION:	Rondo Building Services  P/L v Casaron P/L & Anor [2003] QCA 78
PARTIES:	RONDO BUILDING SERVICES  PTY LTD ACN 000 289 207 (plaintiff/appellant) v CASARON PTY LTD (FORMERLY PPP (QLD) PTY LTD ACN 077 155 429 (first defendant) PETER JOHN DANCE (second defendant/respondent)
FILE NO/S:	Appeal No 5394 of 2002 DC No 3731 of 2001
DIVISION:	Court of Appeal
PROCEEDING:	General Civil Appeal
ORIGINATING COURT:	District Court at Brisbane
DELIVERED ON:	7 March 2003
DELIVERED AT:	Brisbane
HEARING DATE:	12 February 2003
JUDGES:	McPherson and Davies JJA and Cullinane J Separate reasons for judgment of each member of the Court, each concurring as to the orders made
ORDERS:	Appeal allowed with costs. Judgment of the District Court set aside. In lieu, judgment for the plaintiff against the second defendant in the sum of $168,889.19 with interest and costs, including reserved costs, if any, of and incidental to the proceedings in the District Court
CATCHWORDS:	SALE OF GOODS – PASSING OF PROPERTY AND RISK – RESERVATION BY SELLER OF RIGHT OF DISPOSAL – goods delivered to buyer used in building projects – whether property in goods passed – whether seller entitled to maintain action for the price of the goods SALE OF GOODS – REMEDIES FOR BREACH OF CONTRACT – REMEDIES OF SELLER – ACTION FOR PRICE – DEFENCES – debt of buyer guaranteed – whether debt was discharged by performance – whether payment of a fraction of debt into trust can discharge the whole debt Sale of Goods Act 1896 (Qld), s 22(1), s 50(1) Associated Alloys Pty Limited v ACN 001 452 106 Pty Limited [2000] HCA 25; (2000) 202 CLR 588, distinguished Hobson v Gorringe [1897] 1 Ch 182, applied Young v Queensland Trustees Ltd [1956] HCA 51; (1956) 99 CLR 560, applied
COUNSEL:	R A Myers for the appellant SW Couper QC for the respondent
SOLICITORS:	James Conomos for the appellant Hawthorn Cuppaidge & Badgery for the respondent

[1] McPHERSON JA: This is an appeal by the appellant plaintiff  Rondo Building Services  Pty Ltd from a decision in the District Court dismissing its claim against the respondent second defendant Peter Dance on a guarantee of the indebtedness of the first defendant Casaron Pty Ltd for goods sold and delivered. Rondo is a supplier of steel framework used in the construction of partitions, walls, ceilings in office buildings and the like. In about May 1997, it began supplying its products to Casaron, which is a company formerly engaged in the building construction industry, and of which Dance was the managing director. When these proceedings (no 3731 of 2001) were instituted in the District Court, there was an amount owing and unpaid by Casaron to Rondo for goods sold and delivered, and on 23 October 2001, Rondo obtained summary judgment against the first defendant Casaron in the sum of $144,881.17 together with interest and costs. A contemporaneous application against the second defendant Dance based on his guarantee of the indebtedness was unsuccessful. McGill DCJ gave leave to defend those proceedings, which came to trial before Forde DCJ, who on 17 May 2002 delivered judgment dismissing the claim. It is against that judgment that the appeal is brought.

[2] On appeal, the principal question in issue concerned the effect of Rondo’s Standard Conditions of Sale which applied to trading between it and Casaron. Among other things, those conditions provided that, despite delivery of products by Rondo or their installation, property in them was to remain in Rondo until the buyer had paid any and all of its indebtedness to Rondo (cl 13); but that the risk should pass on delivery (cl 14); that the buyer’s possession of the products was to be as bailee for Rondo until payment was made as defined in cl 13 (cl 15); but that Rondo licensed the buyer to install the products on terms that they should remain the property of Rondo until full payment of the price; or, if affixed to property of a person other than the buyer, that Rondo should become a tenant in common with that other person (cl 16). Clause 17 of the conditions, which for the purpose of this appeal is the central provision, is in the following terms:

17. The buyer shall be at liberty to agree to sell products (independently or affixed to the other materials) subject to the condition that until payment of the price, the buyer shall sell as agents and bailees for Rondo and that the entire proceeds from sale thereof shall be held in a separate account in trust for Rondo.

[3] When the trading account between Casaron and Rondo was opened in May 1997, Mr Dance executed a document entitled Deed of Guarantee and Indemnity in favour of Rondo guaranteeing Casaron’s indebtedness or liability for goods supplied or to be supplied to Casaron. At the trial there was an issue about the character in which Dance had executed this document, whether personally or as director on behalf of Casaron; but it was resolved in favour of Rondo and there is no appeal against that determination. The question on appeal is whether, in view of the terms of cl 17 of the Conditions of Sale and of the guarantee and the events following its execution, Rondo was entitled in reliance on the guarantee to recover from Dance the amount of the debt alleged to be owing by Casaron. That company has since been ordered to be wound up following service of a statutory demand based on non-payment of the sum owing under the summary judgment given against it by McGill DCJ.

[4] The provisions of the clauses referred to in Rondo’s standard conditions make use of s 22(1) of the Sale of Goods Act 1896 enabling the seller of goods to reserve the right of disposal of the goods until certain conditions are fulfilled; in which event, the section goes on to say, property in the goods does not pass to the buyer until the conditions are fulfilled “notwithstanding the delivery of the goods to the buyer”. What happened here, however, was that, having taken delivery of the goods, Casaron used them in various building projects in and around Brisbane and elsewhere in which it was engaged as a subcontractor. The materials in question were incorporated into the fabric of the buildings in question, and so became part of the realty: Hobson v Gorringe [1897] 1 Ch 182. It was admitted that, at that stage, the property in the goods supplied passed from Rondo and did so despite the provisions of the standard condition reserving title to the seller. The property having passed, Rondo as seller became entitled under the contract of sale to Casaron to maintain an action for the price of the goods under s 50(1) of the Sale of Goods Act. It is for that indebtedness for the balance of the price that Mr Dance is sued on his guarantee.

[5] His response, which was accepted by his Honour in the District Court, is that, by virtue of cl 17 of the standard conditions, the liability of Casaron and its debt to Rondo was discharged by performance, and therefore that there was and is no indebtedness to which the guarantee could apply; alternatively, if there was any remaining indebtedness, Rondo had failed at the trial to establish the amount of it. At one point in the outline of submissions on appeal, the respondent came close to suggesting that the onus rested on Rondo as the plaintiff to prove that the indebtedness had not been discharged. But that is inconsistent with the ruling of the High Court in Young v Queensland Trustees Ltd [1956] HCA 51; (1956) 99 CLR 560, 569-570, that the law “was and is that, speaking generally, the defendant must allege and prove payment by way of discharge as a defence to an action for indebtedness in respect of an executed consideration”. Having been reminded of that decision, Mr Couper SC for the respondent said he “stepped back” from any submission to that effect.

[6] The case is therefore one in which Rondo is entitled to succeed in its claim against Mr Dance on the guarantee unless some other defence is available to him. A clause in terms similar to cl 17 of the standard conditions of sale in this case was considered by the High Court in Associated Alloys Pty Limited v ACN 001 452 106 Pty Limited [2000] HCA 25; (2000) 202 CLR 588. The relevant sub-clause in the contract in that case was as follows:

In the event that [the buyer] uses the goods/product in some manufacturing or construction process of its own or some third party, then [the buyer] shall hold such part of the proceeds of such manufacturing or construction process as relates to the goods/product in trust for [the seller]. Such part shall be deemed to equal in dollar terms the amount owing by [the buyer] to [the seller] at the time of receipt of such goods.

In that matter as in this, the goods, which were quantities of steel supplied by the seller, were used in the fabrication of other products and so lost their original identity. The seller, which had not been paid the full amount of the price due to it, claimed it was entitled to trace into and assert a right in equity to the buyer’s book debts arising out of its onward sale of the fabricated products to a third party. The High Court held, however, that the phrase “the proceeds” in the relevant clause was “to be construed as referring to moneys received by the buyer and not debts which may be set out in the buyer’s books (or computer records) from time to time” [2000] HCA 25; (202 CLR 588, 602). There is no reason to ascribe a different meaning to the expression “proceeds” in cl 17 of the standard conditions in the present case. Prima facie it means the money received by Casaron for the goods bought from Rondo that were installed in the partitions, walls and ceilings constructed by it in the buildings on which it worked.

[7] In the end the seller in Associated Alloys was unsuccessful in its claim to equitable relief by tracing “proceeds” into the buyer’s book debts over which the seller claimed a trust or charge in its favour. Its claim was rejected because it failed to establish that payments received by the buyer from the third party were “proceeds” within the meaning of the relevant sub-clause. It was only when “proceeds” were received that the sub-clause operated to constitute the trust in respect of payments made by the buyer to the seller. The seller, their Honours said [2000] HCA 25; (202 CLR 588, 612), “had failed to prove an essential fact in issue, namely the receipt of ‘proceeds’ by the buyer. Without proof of this threshold fact no trust relationship can arise under the proceeds sub-clause between the seller and buyer”. To the proposition that the seller was entitled to an account as a way of identifying whether any and what “proceeds” had been received by the buyer, their Honours’ response was that, before a party can be ordered to account, a liability to account must be established, and “the seller’s failure to prove that the buyer was a fiduciary, owing trust obligations to the seller, denies its claim to this remedy” [2000] HCA 25; (202 CLR 588, 613).

[8] In the course of reaching this conclusion in Associated Alloys, their Honours had, however, explained earlier in their reasons how the relevant sub-clause operated between seller and buyer. They said that it was necessary, as a matter of business efficacy, to imply in the contract of sale between the parties a term that “upon the receipt by the buyer of the relevant ‘proceeds’ (and thus the constitution of a trust of part of those proceeds), the obligation in debt would be discharged ... The implied term thus provides one means of discharging the debt by performance” [2000] HCA 25; (202 CLR 588, 609-610). It was essentially on the basis of such a discharge by performance that Mr Dance succeeded at first instance in defeating Rondo’s claim in the proceedings. There was, it was said, an implied term in the standard conditions of sale that, once the trust of proceeds was constituted, the indebtedness of the buyer Casaron arising from the sale was overtaken and replaced by its obligation as trustee under cl 17 of the standard conditions. Once the relationship of debtor and creditor was transformed into one of trustee and beneficiary, the buyer’s obligation to pay the price was, as the High Court recognised in Associated Alloys, discharged by performance.

[9] There is, however, more than one reason for rejecting the defence put forwarded by Mr Dance. Clause 17 in the present case differs in some respects from the relevant sub-clause considered in Associated Alloys. On appeal, counsel for Rondo placed great stress on the absence from cl 17 of the final sentence in the sub-clause in that case, which read “Such part [of the proceeds] shall be deemed to equal in dollar terms the amount owing by the buyer to the seller at the time of receipt of such proceeds”. I doubt, however, whether that provision has the importance contended for. It appears to have been designed to ensure that, as each part of the proceeds was received, the indebtedness under the contract of sale was reduced pro tanto. That, on one view of their Honours’ reasons, was the significance assigned to it in Associated Alloys. I would not doubt that, even without it, cl 17 might possibly have a similar operation, with the result that the indebtedness is reduced to the extent that “proceeds” are received and dealt with as dictated by that clause.

[10] More to the point is the observation made by Davies JA in the course of the hearing on appeal that, unlike the sub-clause in Associated Alloys, the condition imposed by cl 17 is expressed to operate “until payment of the price”, which is an indication, and possibly a decisive one, that the indebtedness or obligation to pay the price was intended to persist concurrently with the duty to hold the proceeds in a separate trust account. Being an express term that is inconsistent with the term sought to be implied, it necessarily prevents the implication of a term that, upon constitution of the trust. The contractual obligation to pay the price is overtaken by the relationship of trustee and beneficiary that then prevails between the buyer and the seller with respect to those “proceeds”. There are passages in the reasons in Associated Alloys [2000] HCA 25; (202 CLR 588, 609-610) in which receipt of proceeds by the buyer is regarded as constituting the trust and discharging the obligation in debt. It is, however, difficult to accept that the parties here intended that receipt by the buyer of only a small fraction of the proceeds would have the effect of completely discharging the buyer’s obligation to pay the price or indebtedness arising under the contract of sale and the delivery of the goods. Clause 17 in terms literally requires the “entire proceeds” from sales by the buyer to be held in a separate trust account. Until that is done, the buyer cannot claim to be discharged by performance in accordance with that clause.

[11] In Associated Alloys, it was also said that the burden of proving the constitution of the trust lay on the seller [2000] HCA 25; (202 CLR 588, 613); but there it was the seller that was asserting that the trust had been constituted. Here it is the buyer, or rather the buyer’s guarantor. Their Honours were not considering a case in which it was alleged that the buyer had discharged the debt by performance. On the contrary, the seller there was claiming to be entitled to enforce against the book debts the trust of proceeds which it alleged had arisen in its favour. When, as in this case, the second defendant claims that the buyer has discharged its indebtedness by performance, he is bound to prove as an element of that defence that the buyer complied with the requirements of the relevant clause not only by receiving proceeds but also, in the case of a provision like cl 17, by holding them in a separate account. Only to the extent that this is proved to have been done can the buyer or its guarantor claim to have discharged the debt that arose from the contract of sale. Matters of discharge are always to be pleaded and proved by the party relying on them: cf Young v Queensland Trustees Ltd [1956] HCA 51; (1956) 99 CLR 560, 567-570, referred to above. The decision in that case was concerned specifically with discharge by payment; but payment is the form of performance by which the obligation to pay a debt is discharged, and the same rule would, in my opinion, apply here.

[12] On turning to the facts of this case, the evidence is seen to fall well short of establishing that at the trial it was proved that Casaron had been discharged by performance in accordance with cl 17. There were, as I have said, a series of different projects at various places where steel supplied by Rondo and used by Casaron was incorporated in the fabric of the building in question. With respect to each of these projects, Mr Dance said in evidence that the goods supplied by Rondo “had been paid for”. By that he seems to have meant that Casaron had been paid for the steel supplied by Rondo. It is not clear from this whether those projects represented each and every instance in which Rondo steel had been bought and incorporated in buildings; nor is it clear from Mr Dance’s evidence that all such steel supplied had been paid for. There is the further problem for the second defendant that the contracts entered into by Casaron to install the steel products appear clearly enough not to have been contracts for the sale of goods, but contracts for work and materials, to which the terms of cl 17 are not readily applicable. It speaks of the buyer selling products and of the “proceeds from the sale thereof”, and it is by no means obvious what proportion of the payments received by Casaron was referable to materials supplied rather than to the work involved in installing them. What is clear, however, is that any “proceeds”, if identifiable as such, of the “re-sale” of the steel were never held in a separate account as required by cl 17.

[13] In short, the truth is that in the course of their trading both parties completely ignored the trust that is now alleged to have been constituted under cl 17. No doubt it is open to a beneficiary who is fully entitled and sui juris to put an end to a trust in its favour and demand payment or transfer to it of the trust property. In the present case, however, the “proceeds”, if any, of the “sale” by Casaron were, to the knowledge of Rondo, never paid into or held by Casaron in any trust account. Instead, Rondo throughout acquiesced in payments being made direct to it without reference to the terms of cl 17. In those circumstances, it is impossible to say that a trust of the kind envisaged by cl 17 was constituted or operated as a discharge by performance of the obligations imposed on Casaron by that clause. It follows that, for this or any one or more of the other reasons that have been given here, Mr Dance failed at the trial to discharge the onus of establishing that a trust of “proceeds” had been constituted under cl 17, or that Casaron had been discharged of its indebtedness or liability to Rondo arising under the contract of sale. That being so, the debt due to Rondo survived and Mr Dance is liable for it on his guarantee.

[14] In view of this conclusion, it is unnecessary to consider in any detail the appellant’s further argument that the respondent was in some way estopped from raising at the trial before Forde DCJ issues that were not raised by the first defendant Casaron on the summary judgment application before McGill DCJ. It is enough to say that, on any view of it, his Honour was correct in rejecting that submission.

[15] The appeal must be allowed with costs, and the judgment below set aside. In lieu of that judgment, there should now be judgment for the plaintiff with costs, including reserved costs, if any, of and incidental to the proceedings in the District Court, against the second defendant in the sum of $168,889.19 together with interest.

[16] In the initial stages of the trial there appeared to have been some issue about the precise quantum of the appellant’s claim and the interest due on it. If any dispute about it remains, the parties are to notify the Court of Appeal by providing an appropriate form of judgment accompanied, if need be, by written submissions within 14 days of delivery of this judgment.

[17] DAVIES JA: I agree with the reasons for judgment of McPherson JA and with the orders he proposes.

[18] CULLINANE J: I have read the reasons of McPherson JA in this matter and respectfully agree with them and the orders proposed.